Struggling Refinance Program Extended

The Obama administration recently announced that borrowers with little or no equity in their homes will have yet another year to take advantage of a refinancing program that so far has made little progress.

The initiative, known as Home Affordable Refinance Program (HARP), was set to expire in June. But, so far, it has reached fewer than 200,000 of the up to 5 million borrowers federal regulators hoped it would help.

The program is aimed at the millions of borrowers whose home equity has been diminished by falling home prices, or who owe more than their homes are worth, making it impossible for them to take advantage of historically low mortgage rates. Originally the program targeted borrowers whose loan balances were slightly higher than their property’s value. The program was later expanded to include borrowers who owe up to 25 percent more than their homes are worth.

These underwater borrowers are at greater risk of foreclosure, and the administration hoped that lowering their payments would decrease their chances of falling behind.

But the program ran into several problems. Many borrowers were too underwater to qualify and the program was limited to loans backed by Fannie Mae or Freddie Mac, the mortgage financing companies. The initiative was also dogged by delays as lenders struggled to update their computer systems to accommodate the program. Another obstacle was that many homeowners have second mortgages or private mortgage insurance, which can get in the way of refinancing a primary loan.

And for some borrowers, the costs associated with refinancing, such as closing costs, were not worth the lower interest rates, especially for homeowners worried they might lose their jobs or might hit another financial crunch later.